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Thing are changing in the capital’s commercial property market. Whereas two or three years ago it was proving almost impossible to tempt tenants to sign up to a pre-let agreement before a building was complete (indeed, often for some time after the building was complete), news now is that in the first quarter of 2013 a third of space currently under construction is pre-let. And with some months to go before many of these building are finished, that percentage could increase.
In addition, over the last two quarters commercial development has been boosted a further 8%, translating to 9.7 million square feet of office space being under development during that period – a very significant three-fold increase since 2010. 4.5 million square feet of space is currently under development.
Sally Brough, Associate Director at Morgan Pryce says of the emerging pattern, “It is hoped that the interest tenants are taking in pre-letting space will create a ‘snowball’ effect, enticing other tenants to sign up also, which can only mean good things for the London economy”.
The pipeline nature of development means that, while new projects are being commenced or are mid-way through, there were relatively few completions last year, an obvious knock-on effect of the unstable economic climate of the last few years since 2007, when building projects were cancelled or came to a standstill.
Yet until this recent turn in the market, while some buildings remained unlet, there was still an overall shortage of the kind of space tenants wanted, leading to an increase of rents as a result of competition between tenants. It is possible that, with the increase in projects – of a wide variety – the balance may turn back in favour of the tenants, leading to less of a squeeze on rents. Not yet, though: the fact that space is being pre-let means that tenants are still in competition with each other for the best space while it remains available.
The changing trends as to what tenants are looking for has also influenced the market, with the King’s Cross area seeing an increase in new office space of 68%. Another key factor currently influencing the market is, of course, Crossrail.
The good rents which have been obtained by landlords over the recent past few months or years, however, have led to an increase in overseas investment in property in the UK, or London in particular, over other European countries.
Morgan Pryce is a specialist tenant acquisition agent with offices in Oxford Circus and the City. Morgan Pryce specialises in search, negotiation and project management and works exclusively for tenants.